IRS waives the 60-day rollover deadline after an account setup error

Plain-English summary

A taxpayer intended to make a direct rollover from an employer plan into an IRA, but a financial advisor mistakenly opened a non-IRA account. The plan sent the distribution to that account, and the error was discovered two years later after the taxpayer had not used the money. The IRS waived the 60-day rollover requirement and gave the taxpayer 60 days from the ruling letter to roll over no more than the distributed amount into an eligible retirement plan. The waiver applied only if all other requirements of IRC § 402(c) were satisfied.

Ruling snapshot

• Question: May the taxpayer complete a rollover after the 60-day period when a financial advisor mistakenly directed the plan distribution to a non-IRA account?
• Outcome: Approved.
• Key authorities: IRC §§ 401 and 402(c)(3); Treas. Reg. § 1.401(a)(31); Rev. Proc. 2003-16

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE

WASHINGTON, D.C. 20224

AUG 08 2011

201144039

TAX EXEMPT AND

GOVERNMENT ENTITIES
DIVISION

Uniform Issue List: 402.08-00

T:EP:RA:T1

Legend:

Taxpayer A

Plan B

Company C
Company D
Account E

Amount 1

Dear

This letter is in response to a request for a letter ruling dated September 1, 2010, as supplemented by correspondence dated February 11, 2011, from your authorized representative, in which you request a waiver of the 60-day rollover requirement contained in section 402(c)(3) of the Internal Revenue Code (the “Code”).

The following facts and representations have been submitted under penalty of perjury in support of the ruling requested:

Taxpayer A asserts that her failure to accomplish a rollover of Amount 1 within the 60- day period prescribed by section 402(c)(3) of the Code was caused by an error committed by her financial advisor, Company C. Taxpayer A further represents that Amount 1 has been not used for any purpose.

In 2007, upon termination of employment, Taxpayer A, asked Company C to set up an IRA for the purpose of receiving a direct rollover of Taxpayer A’s account with Plan B.

Through a clerical error, Company C set up a non-IRA account with Company D. In a check dated June 20, 2007, Plan A distributed Amount 1 directly to Company D, FBO

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Taxpayer A. Consequently, Amount 1 was deposited into Account E, a non-IRA account. Company C has acknowledged the error in a letter dated February 9, 2011.

Company C discovered the error two years later when consideration was being given to changing Taxpayer A’s investment.

Based on the above facts and representations, Taxpayer A has requested a ruling that the Internal Revenue Service (“Service”) waive the 60-day rollover requirement contained in section 402(c)(3) of the Code with respect to the distribution of Amount 1 from Plan A.

Section 402(c) of the Code provides that if any portion of the balance to the credit of an employee in a qualified trust is paid to the employee in an eligible rollover distribution, and the distributee transfers any portion of the property received in such distribution to an eligible retirement plan, and in the case of a distribution of property other than money, the amount so transferred consists of the property distributed, then such distribution (to the extent transferred) shall not be includible in gross income for the taxable year in which paid. Section 402(c)(3)(A) states that such rollover must be accomplished within 60 days following the day on which the distributee received the property. An individual retirement account (IRA) constitutes one form of eligible retirement plan.

Section 402(c)(3)(B) of the Code provides, in relevant part, that the Secretary may waive the 60-day requirement under sections 402(c) where the failure to waive such requirement would be against equity or good conscience, including casualty, disaster, or other events beyond the reasonable control of the individual subject to such requirement. Only distributions that occurred after December 31, 2001, are eligible for the waiver under section 402(c)(3)(B) of the Code.

Section 401(a)(31) provides the rules for governing “direct transfers of eligible rollover distributions.”

Section 1.401(a)(31) of the Income Tax Regulations, Question and Answer-15, provides, in relevant part, that an eligible rollover distribution that is paid to an eligible retirement plan in a direct rollover is a distribution and rollover, and not a transfer of assets and liabilities.

Rev. Proc. 2003-16, 2003-4 I.R.B. 359, (January 27, 2003), provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to section 402(c)(3) of the Code, the Service will consider all relevant facts and circumstances, including: (1) errors committed by a financial institution; (2) inability to complete a rollover due to death, disability, hospitalization, incarceration, restrictions imposed by a foreign country or postal error, (3) the use of the amount distributed (for example, in the

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case of payment by check, whether the check was cashed); and (4) the time elapsed since the distribution occurred.

The information presented and documentation submitted by Taxpayer A is consistent with her assertion that her failure to accomplish a timely rollover was caused by an error committed by Company C.

Therefore, pursuant to section 402(c)(3)(B) of the Code, the Service hereby waives the 60-day rollover requirement with respect to the distribution of Amount 1 from Plan A. Taxpayer A is granted a period of 60 days from the issuance of this ruling letter to roll over no more than Amount 1 to an eligible retirement plan such as an IRA. Provided all other requirements of section 402(c)(3) of the Code, except the 60-day requirement, are met, Amount 1 when contributed to an eligible retirement plan will be considered a rollover contribution within the meaning of section 402(c)(3) of the Code.

No opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the Code or regulations that may be applicable thereto.

This ruling letter is directed only to the taxpayer who requested it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.

Pursuant to a power of attorney on file with this office, a copy of this letter ruling is being sent to your authorized representative. If you wish to inquire about this ruling, please contact , SE:T:EP:RA:T1, ( ),at()

Sincerely,

[illegible signature]

Carlton A. Watkins, Manager
Employee Plans Technical Group 1

Enclosures:
> Deleted copy of ruling letter
> Notice of Intention to Disclose